Securities America Denies Charges of Departing Reps

Anonymous sources insist advisors are leaving or planning to leave the firm.

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Despite word that Securities America and Ameriprise Financial “made substantial progress” in mediation of a class action suit against the broker-dealer over the sale of certain Reg D securities from Provident Royalties and Medical Capital Holdings, the overall environment at Securities America has deteriorated markedly, with several advisors leaving in April and more set to leave soon, according to a departing Securities America rep and a veteran recruiter.

The news and conversations have “caught everyone off guard, and they are all freaked out … and have begun having meetings” about their next steps, the departing advisor, who has more than 20 years in the business and several years with Securities America, said in a phone interview with Investment Advisor. “There’s a feeling that Securities America cannot last long, maybe two to three months or less, depending on what happens.”

In an interview in late March, Janine Wertheim, Securities America’s senior vice president and chief marketing officer, denied that any of its reps had left the broker-dealer “over the past few weeks because of these events.” In fact, she said that Securities America has “experienced a positive net gain” in the number of reps in 2011, and that its advisors have been “incredibly supportive of us.” There has been only one loss in the “last couple of weeks” of an advisor, she said, and that was a termination due to a “change in business model” at that rep’s practice.

A series of conference calls led by Wertheim and CEO Jim Nagengast between the broker-dealer, Ameriprise Financial and attorneys for plaintiffs in the suit led to “substantial progress,” Wertheim said in an emailed statement. Moreover, she wrote that “all interested parties have committed to a process that we hope will result in a full and final resolution of these matters.”

The company has declined to share other details about the negotiations. It also insists that its advisors are not departing due to the lawsuit.

What the Recruiters, IBDs Are Saying A veteran recruiter confirmed the situation as described by the Securities America rep. “Some reps are already leaving, some will do so in the next couple of weeks and others in the next couple of months,” the recruiter said in a phone interview with Investment Advisor on March 28. “They all pretty much have a plan B, with some saying this is a good time go.”

Still, the recruiter says, those advisors with large books of business “see switching firms as a Herculean task and hope things work out.”

The recruiter is in contact with about 25 Securities America advisors of whom two-thirds want to move regardless of the outcome of any negotiations involving Ameriprise Financial.

And other broker-dealers are getting calls, too.

“We are currently in conversation with some advisors from Securities America who have reached out to us,” said Robert Foney, chief marketing officer of Investors Capital, in an interview. “Our five-star service model is perfect for them as well as for any advisor with an acceptable U4 and business mix, producing over $100,000 per year,” added Foney.

At least one recruiter, though, says there may be a silver lining for Securities America.

“If Securities America [and Ameriprise] are able to engineer a settlement, this makes them look good,” said Mark Elzweig, an executive-search consultant in New York.

“The fact that they have a well-capitalized parent company standing behind them is a strong positive for Securities America. Most other independent broker-dealers don’t. So, if Securities America can survive, the situation could turn out to be a strong positive for the firm.”

Host of Issues According to the departing Securities America rep, the broker-dealer has been less than forthcoming, telling them that Ameriprise is setting aside $40 million for Securities America’s legal issues. However, the advisor said, that $40 million is for Ameriprise’s costs related to a settlement, as was disclosed in its annual report.

“The bottom line is that Securities America is misleading us as to the extent of the problem,” said the advisor.

As to advisors’ concerns over the role that FINRA can potentially play in the situation, FINRA rules stipulate that if a firm falls below the net-capital requirement, its business operations can be suspended.

When asked about the situation by Investment Advisor, FINRA said in a statement that it does not “announce what we might or might not do with respect to any firm.”

Movement of OSJs Disputed The departing advisor further alleged that the top OSJs at Securities America “have been having meetings and are negotiating an en masse move within the four to six weeks.” By moving en masse, the OSJs hope to negotiate for higher payouts and better transition money.

Those advisors with significant RIA businesses will be slower to move, he added. “They want to be sure they can get the end-of-quarter fees and have time to look around.”

Again, Securities America’s Wertheim said that the rep’s assertion on the OSJs was inaccurate. “We’ve been in constant contact with all of our major branches, and they’ve been extremely supportive,” she said.

Securities America’s recruiting efforts “will be hobbled going forward” due to the ongoing media attention and related issues,” the veteran recruiter said. “This will be tough to overcome.”

Securities America has had some good payouts, 92%, for advisors making yearly commissions and fees of about $100,000 to $120,000, he acknowledged. Still, some advisors he is working with are looking for better administrative fees on certain accounts than they now have with the broker-dealer.

Janet Levaux

Janet Levaux, MA/MBA, is Editor in Chief of Investment Advisor magazine; she has covered the financial markets since 1991 and advisors since 2005. After living in Latin America and Europe as part of her studies at Yale and Johns Hopkins SAIS, Janet worked in Japan and then California, where she earned a business degree, before returning to her hometown of San Antonio, Texas (which turned 300 in 2018).

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